Partnership and shareholder disputes can arise where multiple individuals or entities share ownership interests in a business. These disputes can be complex and may involve legal, financial, and interpersonal issues.

Shareholder and partnership conflicts can stem from various sources, often involving money, power, and communication.

The consequences to directors and shareholders stuck in a dispute can be far-reaching as they can distract focus, impacting productivity and finances. Additionally, any public knowledge of internal conflict can tarnish the company’s image.

Partnership and shareholder disputes are a part of business reality. By understanding the causes, consequences, and potential solutions, legal professionals can attempt to navigate these challenges and assist clients in resolving disputes.

Types of Partnership and Shareholder Disputes

• Breach of Partnership Agreement: Disputes may arise when one partner fails to adhere to the terms and conditions outlined in the partnership agreement.
• Profit sharing: Disagreements over how profits are shared between partners or shareholders can be a significant source of conflict. This can be especially problematic if there is no explicit agreement in place or if one partner or shareholder feels that they are not receiving a fair share of the profits.
• Unfair Prejudice: Shareholders or partners in a business can bring a claim against the company or other shareholders/partners when they believe that they have been prejudicial to the interests of the business and other stakeholders. This type of derivative claim typically arises in closely held businesses, where a small number of individuals have significant control over the company’s affairs. An unfair prejudice petition can be brought by majority shareholders under the Companies Act 2006.
• Breach of Fiduciary Duty: Allegations that directors or officers are not acting in the best interests of the company and its shareholders.
• Debts: Disagreements over how to handle debts can also be a source of conflict. This can be especially problematic if one partner or shareholder is personally liable for the debts of the business.
• Deadlocks: In some cases, partners or shareholders may be unable to agree on how to make a decision, which can lead to a deadlock. This can paralyse the business and prevent it from moving forward.
• Poor communication: Poor communication can also lead to conflict. This can be especially problematic if partners or shareholders are not communicating effectively with each other.
• One partner or shareholder wants to leave the business: Disagreements over how to handle a situation where one partner or shareholder wants to leave the business can be conducted in a manner that can lead to conflict. This can be difficult if there is no agreement in place for how to buy out the departing partner or shareholder.
• Winding up the business: Disagreements over how to wind up the business can also lead to conflict, especially if partners or shareholders have different ideas about how to distribute the assets of the business.

How can partnership and shareholder disputes be resolved?

Resolving partnership and shareholder disputes requires a strategic and often multifaceted approach. The specific methods used will depend on the nature and severity of the dispute. Generally, direct negotiation between the parties can be effective if there is a willingness to compromise and find mutually acceptable solutions. However, this is not always possible.

Typically, alternative dispute resolution (ADR) methods are trialled in the first instance, as these techniques are a much more cost-effective option compared to litigation.

Mediation is a popular ADR technique in which a neutral third party facilitates discussions between the involved parties to find common ground. Mediation can be less adversarial and more cost-effective than litigation. Similar to mediation, arbitration can be used, but the third party’s decision is binding. This process can be quicker and less than progressing to court proceedings.

If all else fails, litigation may be necessary. However, legal action can be time-consuming, costly, and can strain relationships further. Litigation should be a last resort due to its high cost, time-consuming nature, and potential for irreparable damage to relationships. However, it may be necessary in situations where other methods have failed or legal rights have been violated.

Ultimately, having a well-drafted partnership agreement or shareholder agreement in place can outline rules, responsibilities, dispute resolution mechanisms, and exit strategies, minimising the potential for future conflict.

Each situation is unique, and the appropriate resolution strategy will depend on the specific circumstances. It’s often beneficial to seek professional advice and involve neutral third parties to help navigate the complexities of partnership and shareholder disputes. ARC Costs has access to a network of experienced partnership and shareholder dispute solicitors who are available to assist you if you are seeking legal advice on partnership disputes.

How can ARC assist?

ARC Costs maintains an extensive legal network of expert commercial litigation solicitors with a track record of success on these types of cases, and we would be happy to pass on your details to assist in your case. 

In addition to introducing you to a solicitor, we can also assist in the recovery and negotiation of legal costs in land dispute cases, whether you are the paying or receiving party.

ARC Costs are highly experienced in advising and assisting with costs issues and disputes in different areas of law. As Costs Draftsman and Costs Lawyers, we can assist you with your commercial litigation costs issues.

Should you wish to discuss your costs query with us, please contact us on 01204 397302 or via email at info@arccosts.co.uk. Alternatively, you can complete our online query form, and we will contact you to discuss your query further. We can provide expert legal advice on costs in our free, no obligation initial consultation.

We may receive payments from third party solicitors on our panel to whom we may refer your claim. We will never charge you for any referrals made to our panel of third parties.